Jefferies analyst Elaine Kwei is out defending the shares today and even raised her price to $210 from $160. For starters, she believes the attention given to the fire is overdone:

Last week a Tesla Model S caught on fire after a freak accident in which a large metal object punctured one of the battery modules in the front of the car. On Friday afternoon CEO Elon Musk posted an explanation surrounding the incident: 1) the car performed as designed and enabled the driver to exit safely; 2) the probability of a vehicle fire in a conventional vehicle is 5x greater than in a Tesla; and 3) the firefighters on the scene may have unintentionally spread the fire. TSLA believes it is unlikely that the incident will merit an NHTSA investigation, and the company does not anticipate making any design changes to the vehicle. The owner of the car plans to buy another Tesla.

Then there’s the matter of Toyota. Kwei believes the rejection of electric cars by the big automakers is a boon for Tesla. She writes:

The chairman of Toyota, Takeshi Uchiyamada, recently stated that he believes hybrids will dominate alternative drivetrains for some time to come, and that there is no significant market for all-electric vehicles. We agree there is a limited market for compromised EVs that cost twice as much as a similar ICE vehicle, but we believe there is a market for EVs that can offer comparable (if not superior) performance and features at a given price point.

Finally, there’s the matter of the company’s sales. Kwei now believes that 5,500 of Tesla’s Model S will be delivered in the third quarter, up from 5,250.

Tesla has gained 2% to $184.65 at 11:41 a.m, while Toyota has dropped 1.5% to $126.05, General Motors (GM) has fallen 0.7% to $35.44 and Ford (F) has declined 1.2% to $16.89.

Here is the real kicker as to why Tesla’s stock will eventually crash. Elon Musk has guaranteed that the Model S will retain 50% of its value in three years. Keep in mind that the battery pack currently makes up roughly half of the cost of a model S. But Tesla’s stock has been surging on expectations of a mass market car that is only possible if battery costs fall by roughly 50%. Hmmmm, so Tesla is guaranteeing the residual value of the model S, of which roughly half the value is in the battery pack, and at the same time Tesla is betting that Battery prices will fall enough to produce a profitable mass market car. Either Tesla is going to take massive loses on its residual value guarantees, or the mass market car will never make it to market. Most experts agree that battery costs will not fall fast enough for Tesla to produce a mass market car. Therefore, the best case scenario for Tesla would be to remain a high end EV manufacturer. Problem is even well established high end auto manufacturers are worth only a fraction of Tesla’s current market value. Porsche, for example, was recently acquired by Volkswagen for $10 billion, almost 60% less than Tesla’s current market value. You see, without a mass market vehicle, Tesla’s stock must crash, even if it remains a highly successful luxury EV manufacturer.

OCTOBER 7, 2013 4:09 P.M.

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